HCM410 Final Exam
Explain the key differences between the operating budget and the capital budget
The operating budget which is also commonly called the annual budget combines the annual revenue budget and the annual expenditure budget while the capital budget accounts for the major capital expenditures of the organization and is normally prepared to cover a number of budget years.
Budget Philosophies
Top-Down Budgeting, Bottom-up Budgeting, Incremental budgeting, Zero-base budgeting
Patricia Summers, RN, slips on wet floor at work and twists her knee. She is out of work for two weeks. Which insurance policy covers her medical costs and lost wages?
Worker's Compensation
Statistical Budget
projects patient care revenues based on units of service to be provided and established reimbursement rates
Cash Budget
projects revenues, expenditures, and cash flow on a monthly basis
Workers Compensation
provides protection for employees injured on the job and is required by law in all states
Variable Rate
the interest rate will adjust periodically based on an index
Zero-based Budgeting Advantages
it aims to correct the downside to incremental budgeting
Five Steps to Developing an Effective Budget
1. Prepare a chart of accounts 2. Track historical revenues and costs 3. Benchmark costs 4. Build the annual budget 5. Review the monthly budget
Three Major Principles of Investing Funds
1. The time value of money is based on the concept of interest 2. Prudent investing requires understanding of market and securities 3. Investors are rewarded for the risks they take
A healthcare facility starts an aggressive program to reduce risks. After 2 years, the facility sees a marked reduction in incidents. The facility should see:
A reduction in insurance premiums
Short Term Low Risk Investments
CDs, US Treasury Bills, Treasury Notes, Treasury Bonds, Federal Agency Securities
Which of the following will negatively impact the relationship between a medical facility and a bank?
Deterioration in the financial condition of the medical facility, the bank reporting major losses from nonperforming loans, Disruptions in national and international financial markets (all of the above)
Billing to Insurance Companies and Government Programs
Encounter forms, coding changes, resident coding expert, reviewing charges in advance of submitting claims. billing errors, ensuring accurate reimbursements, negotiating insurance claims
Collection Policies and Procedures
Establish a payment plan before service is provided, collect at time of service, verify patient information at time of service, billing accounts receivable, have flexible payment terms, granting of discounts, use of collection agencies and consider grounds for dismissal
Future Value
FV = PV(1 + r) ^n
Zero-based Budgeting Disadvantages
it is extremely time consuming and it accumulates massive amounts of paperwork and key information can be lost.
Framework of Risk Management
Identification of Risk, Evaluation of Risk, Reduction and Elimination of Risk, Transfer of Risk
Drs. Draper and Keys experience annual periods of negative cash flow and require infusions of cash to meet operating expenses. Their local bank will likely recommend a
Line of credit
Expediting Cash Flow on Patient Accounts Benefits
More cash on hand provides funding to meet operational needs, may avoid the need for bank loans and related interest costs, rate of collection on receivable falls as the age of receivables increases
Present Value
PV = FV / (1 + r) ^n
The finance department of a large hospital negotiates banking services with a 3-year contract. Nearing the end of a contract period, which of the following will be used to determine the award of a new 3-year banking services contract?
Request for proposal
Capital Budget
accounts for the major capital expenditures of the organization and is normally prepared to cover number of budget years
Operating Budget
aka annual budget, combines the annual revenue budget and the annual expenditure budget
Top-Down Budgeting Advantages
budgeting process moves more quickly and smoothly
Fixed Rate
denotes that the interest rate will remain constant or change only on a predetermined schedule
Bottom-Up Budgeting Disadvantages
each unit has a very different set of needs and the managers may request more or even less than they actually need
Occupational Safety and Health Administration (OSHA)
federal agency that works to prevent injuries and protect the safety of the American workplace
Top-Down Budgeting Disadvantages
other managers are not included in the process, less communication
Bonds
securities where the issuer borrows money from an investor and promises to repay the investor a fixed principal and interest at a stated rate on a specific date
Commercial Banks
serve the borrowing needs of most medical facilities single payment loans, line of credit, terms loan
Incremental Budgeting Advantages
simple procedure
Revenue Budget
starts with the projected revenues form patient care, based on the statistical budget, and adds non patient revenues to project total revenues for the budget year
Breakeven Analysis (solve for volume or quantity)
the budget mechanism that allows dot the determination of the number of units of service that need to be provided to cover the organization's costs price x volume = fixed costs + (variable costs per unit x Volume)
Credit Risks
the danger that the value of a security will fall with the declines in the financial strength of the company issuing the security
Medical Facility Average Cost
the total operating costs of the practice divided by the number of patient visits
Incremental Budgeting Disadvantages
there is an assumption that all funds are being used in a prudent and necessary manner even if they are not in actuality
Bottom-Up Budgeting Advantages
this kind if budgeting is that the unit managers are the ones most informed and familiar with the unit and their budget needs and promotes better communication throughout the managerial team
Revenue Losses in the System of Appointments
timing of the appointments, missed appointments,
